Minnesota regulators boost carbon cost estimates for utility planning

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Dive Brief:

Minnesota regulators on Thursday, by a 3-2 margin, updated the estimated cost of carbon emissions utilities must consider in planning for new infrastructure projects, increasing it to a range of $9.05 to $43.06 per short ton of emissions by 2020. The current range used in Minnesota is $0.44 to $4.53 per short ton of emissions.

The new values, based on a federal social cost of carbon (SCC) measurement, align closely with the range utility Xcel Energy proposed to regulators earlier this year. Environmental groups hailed the decision, but the two dissenting commissioners wanted a higher carbon value range proposed by the Minnesota Pollution Control Agency and the state Department of Commerce.

The Minnesota decision follows a May ruling from Colorado regulators to integrate social cost of carbon estimates into utility planning, and policymakers in New York and Illinois last year based their state nuclear subsidies in part on a federal carbon cost measurement. The Trump administration suspended use of the SCC for federal planning in March.

Dive Insight:

Minnesota environmental groups praised the Public Utilities Commission's decision to boost carbon cost estimates, but the approval actually represented the more modest end of the PUC process.

The federal SCC included a wide range of potential values, from $12/ton to $60/ton in 2020. Public health advocates and two state agencies argued Minnesota regulators should aim for the upper values of that range, pushing for a $12.30/ton to $63.56/ton valuation in 2020.

Xcel pushed for a carbon cost between about $12/ton and $42/ton, while other utilities — Great River Energy, Minnesota Power and Otter Tail Power — argued for a range between about $8/ton and $19/ton.

PUC Chair Nancy Lange and Commissioners Dan Lipschultz and John Tuma aimed for the middle, approving a value close to the Xcel number. But the Star-Tribune notes Commissioners Matthew Schuerger and Katie Sieben would have opted for the higher value range.

The adopted SCC values apply discount rates of 3% and 5%, discarding a 2.5% valuation used for the federal SCC and supported by the state agencies. Discount rates assign future risks in today's dollars, and a lower rate means a higher present value of current risks.

The carbon cost will primarily affect siting decisions about natural gas generation, as no utilities in the U.S. have public plans to build a new coal-fired power plant. The PUC will evaluate future projects based on the range of carbon costs and discount rates.

The base case would apply a $0/ton cost estimate as a reference, while $9/ton would comprise the low estimate case, and $43/ton would be the high case.

“The commission was very clear it wanted all three data points for social cost of carbon,” Andrew Moratzka, chair of the energy development practice at law firm Stoel Rives, wrote in an email. “There are many strategist modeling runs in each resource case."

The federal social cost of carbon was first developed by an inter-agency working group during the Obama administration to guide rulemakings across government departments.

The measurement has come under fire in the Trump era, however, with the president announcing in March that the federal government would no longer use it for agency rule making. On Thursday, the U.S. House included a Republican amendment to an energy spending bill that would bar federal funds from being used to develop “regulation or guidance” related to the SCC.

Despite federal opposition, a few states are moving ahead with the carbon cost estimates.

In May, Colorado regulators approved a SCC rule that will require Xcel Energy to value carbon emissions at $43/ton in 2022, escalating to $69/ton in 2050. That decision was the first direct use of the federal carbon cost estimate in a state utility planning process.

Last August, the New York Public Service Commission unanimously approved zero-emission credits to support the continued operation of three upstate nuclear plants. In crafting their program, regulators used the SCC to help estimate the value of the emission credits received by the plants, along with expected power costs and other factors.

In December, the Illinois legislature followed suit, crafting a similar programto support a group of nuclear plants under financial pressure. That law, the Future Energy Jobs Act, also uses the SCC to calculate credit value, calling it “an appropriate valuation of the environmental benefits provided by zero emission facilities.”